Expert insights on finance: how the ‘save the hassle’ approach holds businesses back—and how to move forward…

‘It’s a small project that doesn’t need much money. We’ll start with our own funds and save ourselves the hassle of applying for a loan!’ This bare-bones approach to financing appeals to many established medium-sized developers because it is ‘easy’.

 

Yet often, the supposed ‘shortcut’ turns out to be the longest route. Trying to ‘save the hassle’ creates bigger headaches for business growth: constrained cash flow, difficulty funding other projects running at the same time, or an inability to start larger projects and consequent missed opportunities in favourable market cycles.

 

How can a business maximise its use of capital without affecting cash flow for its core operations? Finance expert and former government investment official Vicky Xi shares her views:

 

About Vicky

Vicky Xi, a finance partner at Squirrel Group, has nearly ten years’ experience in New Zealand banking and previously served as the New Zealand Government’s Director of Cross-border Investment for Greater China.

With extensive experience in New Zealand’s financial system and a thorough understanding of financing and lending rules across major commercial banks’ property departments and finance companies, Vicky has particular expertise in development-related lending, including land acquisition, development and construction loans. YIJU has teamed up with Vicky to launch the ‘Expert insights on finance’ column. Through in-depth analysis of representative cases, the column shares the financing insights she has distilled from years of practical experience, helping YIJU readers apply those lessons to similar situations.

 

Case study

 

Company D is a typical medium-sized Auckland development and construction company with extensive experience and substantial capabilities. It has consistently funded projects using accumulated profits from gradual growth, alongside cash-flow loans from banks’ business banking divisions. As its business expanded, Company D needed to advance several projects simultaneously, including its own townhouse and apartment developments, and ran into funding difficulties:

 

Compared with conventional standalone houses or townhouses, apartment projects have longer planning periods, fewer financing options and higher equity requirements. Seeking to ‘avoid the hassle’, Company D had committed substantial amounts of its own funds to smaller projects, severely constraining cash flow. When its apartment project was ready for construction, it lacked the funds to get started. Recent declines in financial liquidity and tighter credit made the problem particularly acute.

 

Professional advice

 

Vicky, who is well versed in the financing models used by New Zealand’s small and medium-sized businesses and listed companies, says developers in this situation should change their approach: use leverage for some smaller projects, preserving cash flow to support financing for larger, more complex projects and making better use of capital. The returns and efficiency gains can far exceed those of the bare-bones, self-funded approach adopted to ‘save the hassle’.

 

In this case, Vicky spent considerable time talking with Company D and building trust before gaining a comprehensive understanding of its cash reserves, business direction, shareholder structure and risk appetite. She then created a tailored project delivery schedule. She selected different financing channels for different projects according to their scale, complexity, funding requirements and the difficulty of achieving pre-sales, seeking a balance between profit, speed, project numbers and stability to maximise capital utilisation. At the same time, she worked to help the developer expand its own project portfolio and strengthen its corporate image, while continuing to support sales and financing for subsequent projects.

 

For the apartment project Company D had been unable to start, Vicky developed an overall project financing plan and arranged supplementary funding through Squirrel’s own financial product, Squirrel Money. She packaged and presented the developer and its apartment project to the bank’s specialist Property Finance department, securing a credit approval letter in just two days. The loan carried a low interest rate of 4%, no line fee and only partial pre-sale requirements. Company D’s apartment project successfully got underway, allowing it to benefit from a rising market.

 

The successful loan application was closely linked to Vicky’s focus and extensive experience in property development lending, her strong professional relationships with banks, her detailed knowledge of each bank’s current property lending requirements and approval processes, and thorough project financing preparation. In addition,

Vicky’s detailed knowledge of the current cash reserves and lending conditions of lenders of all sizes serving developers enables her to anticipate market conditions around 3 months ahead. This helped Company D’s apartment project catch the rising market cycle.

 

‘We really appreciate Vicky’s time. We learn so much from every conversation.’ ‘Vicky is highly professional and very experienced. She considers many issues we haven’t thought of and provides efficient solutions that secure the greatest benefit for us.’ Company D’s management praised Vicky’s expertise and authority. She has become the trusted, go-to finance adviser for many developers.